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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One) [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-21850
BANKUNITED FINANCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 65-0377773
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
255 ALHAMBRA CIRCLE, CORAL GABLES, FLORIDA 33134
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) ZIP CODE
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (305) 569-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
CLASS A COMMON STOCK, $.01 PAR VALUE
8% NONCUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES 1993
9% NONCUMULATIVE PERPETUAL PREFERRED STOCK
(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K. [ ]
The aggregate market value of the Class A Common Stock held by
non-affiliates of the Registrant, based upon the average price on December 26,
1997, was $170,746,778.* The other voting securities of the Registrant are not
publicly traded.
The shares of the Registrant's common stock outstanding as of December 26,
1997 were as follows:
CLASS NUMBER OF SHARES
- ----------------------------------------------- -----------------
Class A Common Stock, $.01 par value 13,871,915
Class B Common Stock, $.01 par value 285,958
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Definitive Proxy Statement for its 1997 Annual Meeting of
Stockholders will be filed with the Securities and Exchange Commission not
later than 120 days after the end of the fiscal year covered by this Form 10-K
pursuant to Rule G(3) of the General Instructions for Form 10-K. Information
from such Definitive Proxy Statement will be incorporated by reference into
Part III, Items 10, 11, 12 and 13 hereof.
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* Based on reported beneficial ownership of all directors and executive
officers of the Registrant; this determination does not, however, constitute
an admission of affiliated status for any of these individual stockholders.
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PART I
ITEM 1. BUSINESS
BUSINESS OF BANKUNITED FINANCIAL CORPORATION
GENERAL
BankUnited Financial Corporation (the "Company" or "BankUnited") is a
Florida corporation and the savings and loan holding company for BankUnited,
FSB (the "Bank"). The Company currently has seventeen branch offices in South
Florida and anticipates opening at least six additional branch offices by
September 30, 1998 in its market area, either by acquisition or de novo
branching, and may expand into other parts of Florida. The Company's business
has traditionally consisted of attracting deposits from the general public and
using those deposits, together with borrowings and other funds, to purchase
nationwide and to originate in Florida single-family residential mortgage
loans, and to a lesser extent, to purchase and originate commercial real
estate, commercial business and consumer loans. The Company also invests in tax
certificates and other permitted investments. The Company's revenues are
derived principally from interest earned on loans, mortgage-backed securities
and investments. The Company's primary expenses arise from interest paid on
deposits and borrowings and non-interest operating expenses incurred in
operations.
During the past three years the Company has redefined its strategy to
increase its emphasis on strategic product niches which management believes are
being underserved as South Florida's banks consolidate. Such product niches
include commercial business and commercial real estate lending and deposit
services for small to mid-sized businesses. The Company also focuses on
attracting depositors by stressing convenience, competitive rates and
personalized service.
The Company's operating plan emphasizes (i) rapidly expanding the
Company's deposit base by providing convenience, competitive rates and
personalized service in its market area and continuing expansion of the
Company's branch network through de novo branching or the acquisition of
branches of, and mergers with, existing financial institutions; (ii)
concentrating lending activities on purchasing single-family residential
mortgage loans and originating such loans when market opportunities are
favorable; (iii) expanding the Company's commercial and multi-family real
estate, commercial business, and real estate construction lending; (iv)
increasing non-interest income, and (v) maintaining asset quality.
The Bank is a member of the Federal Home Loan Bank of Atlanta (the "FHLB")
and is subject to comprehensive regulation, examination and supervision by the
Office of Thrift Supervision (the "OTS") and the Federal Deposit Insurance
Corporation (the "FDIC"). Deposits at the Bank are insured by the Savings
Association Insurance Fund to the maximum extent permitted by law.
MARKET AREA AND COMPETITION
The Company conducts operations in South Florida, which geographic region,
at December 31, 1996, had a total of approximately $76 billion in deposits at
commercial banks, savings institutions, and credit unions (39% of the total of
$195 billion of deposits in Florida). The Company intends to continue to
establish or acquire branch offices in its market area and may expand into
other parts of Florida.
In 1995, the Company sold its three branch offices on the west coast of
Florida, including their deposits which totaled $130.3 million at the date of
sale. The sale was pursuant to a strategy designed to take advantage of
consolidation trends in banking and growth opportunities in South Florida.
Also, as part of this strategy, the Company opened additional Florida branch
offices in Boynton Beach in June 1996, West Palm Beach in September 1996, Boca
Hamptons in August 1997, Coconut Creek in October 1997 and Aventura in November
1997. On March 29, 1996, the Company acquired The Bank of Florida with total
assets of $28.1 million which was merged into the Bank and consolidated into
the Bank's
1
South Miami branch. On November 15, 1996, the Company acquired Suncoast Savings
and Loan Association, FSA ("Suncoast"), with total assets of $409.4 million,
which was merged into the Bank. On September 19, 1997 the Company signed a
definitive agreement to acquire Consumers Bancorp and merge its subsidiary,
Consumers Savings Bank, into the Bank. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Acquisitions."
The Company encounters strong competition in attracting deposits and in
its lending activities. Its most direct competition for deposits historically
has been from commercial banks, brokerage houses, other savings associations,
and credit unions located in the Company's market area, and the Company expects
continued strong competition from such financial institutions in the
foreseeable future. Within the Company's market area are branch offices of
several super-regional commercial banks and savings associations that are
substantially larger and that have more extensive operations than does the
Company. In addition, many financial institutions formerly independent and
operating in South Florida have recently been acquired by larger institutions
headquartered in other parts of the state or headquartered out of state. The
Company's goal is to compete for savings and other deposits by offering
depositors a higher level of personal service, together with a wide range of
deposit products offered at competitive rates. The Company believes that this
strategy will enable it to attract depositors as the number of local
institutions declines and depositors who desire more personal service,
particularly retirees, relocate their accounts.
The competition in originating real estate and other loans comes
principally from commercial banks, mortgage banking companies and other savings
associations. The Company competes for loan originations primarily through the
interest rates and loan fees it charges, the types of loans it offers, and the
efficiency and quality of service it provides. The Company purchases
residential first mortgage loans in the existing secondary mortgage market and
competes with other mortgage purchasers primarily on the basis of price. While
the Company has been, and intends to continue to be, primarily a residential
lender, the Company has recently increased its emphasis on commercial real
estate, construction and commercial lending, as discussed more fully below.
Factors that affect competition in lending include general and local economic
conditions, current interest rates and volatility of the mortgage markets. As
with its deposit products, the Company's strategy is to promote its higher
level of personal service and to position itself as a small- to middle-market
lender servicing businesses left underserved by larger institutions.
Management's strategy has included and continues to include evaluating
market needs and offering products to meet those needs. The Company will
continue to offer products and services that will allow it to control the
growth of its assets and liabilities. These new products and services will
allow the Company to properly position itself to its customers as a community
bank.
FACTORS AFFECTING EARNINGS
The results of the Company's operations are affected by many factors
beyond the Company's control, including general economic conditions and the
related monetary and fiscal policies of the federal government. Earnings
generated from lending activities are affected by the demand for mortgages and
other types of loans, which is in turn affected by the interest rates at which
such loans may be offered, and other factors affecting the supply of housing
and the availability of funds. Sources and costs of funds, principally deposits
and borrowings, are influenced by yields available on competing investments and
by general market rates of interest.
ASSET AND LIABILITY MANAGEMENT. The Company's net earnings depend
primarily on its net interest income, which is the difference between interest
income received on its interest-earning assets (principally loans, short-term
and long-term investments, and mortgage-backed securities) and interest expense
paid on its interest-bearing liabilities (principally deposits, FHLB advances,
and trust preferred securities). The Company's net interest income is
significantly affected by (i) the difference between yields received on its
interest-earning assets and the rates paid on its interest-bearing liabilities
(the "interest rate spread") and (ii) the relative amounts of its
interest-earning assets and interest-bearing
2
liabilities. When interest-earning assets equal or exceed interest-bearing
liabilities, any positive interest rate spread will generate net interest
income. When such liabilities exceed such assets, the greater the positive
interest rate spread must be in order to produce net interest income.
Non-interest sources of income and non-interest expenses also affect the
Company's net income. The higher non-interest expenses are, the greater the
positive interest rate spread and/or non-interest sources of income must be to
produce net income.
The Company's exposure to interest rate risk is measured as the
sensitivity of the value of its financial instruments and net interest income
to changes in the level of interest rates. Generally, interest rate risk for a
financial institution results from differences in repricing intervals or
maturities between interest-earning assets and interest-bearing liabilities.
When such differences exist, a change in the level of interest rates will most
likely result in an increase or decrease in net interest income. The Company's
ability to manage interest rate risk depends upon a number of factors,
including competition for loans and deposits in its market area and conditions
prevailing in the secondary mortgage market.
To reduce the adverse impact of increases in market interest rates on the
Company's net interest income, the Company has emphasized the origination and
purchase of adjustable-rate mortgage loans. At September 30, 1997, 76.1% of the
Company's net loans receivable and mortgage-backed securities carried
adjustable interest rates. The Company has from time to time acquired longer
term fixed-rate mortgage loans when the yields on these interest-earning assets
have been deemed advantageous by management. As a part of its asset and
liability management strategy, and when market conditions are favorable, the
Company attempts to lengthen the maturities of its interest-bearing liabilities
(i) with longer term deposits or (ii) when advantageous, with longer term
borrowed funds.
The Company has rate-sensitive (maturing or subject to repricing within
one year) assets that exceed its rate-sensitive liabilities, resulting in a
positive cumulative one-year gap position of 4.9% of total assets as of
September 30, 1997. This imbalance, when coupled with the deregulation of the
restrictions previously imposed on the types of savings products that financial
institutions are permitted to offer, subjects the Company's earnings to change
based on fluctuations in interest rates. The Company constantly attempts to
reduce the sensitivity of its earnings to fluctuations in interest rates by
adjusting the average maturities of its interest-bearing liabilities and
interest-earning assets. There can be no assurance, however, of the degree to
which the Company will be able to effectively maintain the balance of its
short-term interest-earning assets as compared to its short-term
interest-bearing liabilities and manage the risks to liquidity associated
therewith.
3
GAP TABLE. The following table sets forth the amount of interest-earning
assets and interest-bearing liabilities outstanding at September 30, 1997,
which are expected to reprice or mature in each of the future time periods
shown.
AT SEPTEMBER 30, 1997
------------------------------------------
INTEREST SENSITIVITY PERIOD (1)
------------------------------------------
6 MONTHS 6 MONTHS OVER 1 -
OR LESS - 1 YEAR 5 YEARS
-------------- ------------- -------------
(DOLLARS IN THOUSANDS)
Interest-earning assets:
Investments, tax certificates, Federal funds sold,
FHLB overnight deposits and other interest
earning assets, at cost ........................ $ 139,450 $ 23,108 $ 24,397
Mortgage-backed securities ........................ 24,058 7,013 46,488
Loans:
Adjustable-rate mortgages ........................ 789,494 416,262 115,574
Fixed-rate mortgages .............................. 72,257 26,124 152,548
Commercial and consumer loans ..................... 10,182 310 1,704
--------- --------- ---------
Total loans .................................... 871,933 442,696 269,826
--------- --------- ---------
Total interest-earning assets .................. 1,035,441 472,817 340,711
Total non-interest-earning assets ............... -- -- --
--------- --------- ---------
Total assets .................................... $1,035,441 $ 472,817 $ 340,711
========== ========= =========
Interest-bearing liabilities:
Customer deposits:
Money market and NOW accounts ..................... 2,916 2,918 23,344
Passbook accounts ................................. 6,018 6,020 48,160
Certificate accounts .............................. 613,825 195,619 126,429
---------- --------- ---------
Total customer deposits ........................ 622,759 204,557 197,933
Borrowings:
FHLB advances .................................... 440,000 105,000 125,000
Trust Preferred ................................. -- -- --
Other borrowings ................................. 30,000 -- --
---------- --------- ---------
Total borrowings ................................. 470,000 105,000 125,000
---------- --------- ---------
Total interest-bearing liabilities ............... 1,092,759 309,557 322,933
Total non-interest-bearing liabilities ............ -- -- --
Shareholders' equity .............................. -- -- --
---------- --------- ---------
Total liabilities and shareholders' equity ...... $1,092,759 $ 309,557 $ 322,933
========== ========= =========
Total interest-earning assets less interest-bearing
liabilities ("GAP") .............................. $ (57,318) $ 163,260 $ 17,778
========== ========= =========
Ratio of GAP to total assets ..................... (2.67)% 7.61% .83%
========== ========= =========
Cumulative excess (deficiency) of interest-earning
assets over interest-bearing liabilities ......... $ (57,318) $ 105,942 $ 123,720
========== ========= =========
Cumulative excess (deficiency) of interest-earning
assets over interest-bearing liabilities, as a
percentage of total assets ... (2.67)% 4.94% 5.77%
========== ========= =========
NON-
OVER 5- OVER 10- INTEREST
10 YEARS YEARS EARNING TOTAL
------------- ------------- ------------- -----------
Interest-earning assets:
Investments, tax certificates, Federal funds sold,
FHLB overnight deposits and other interest
earning assets, at cost ........................ $ -- $ -- $ -- $ 186,955
Mortgage-backed securities ........................ 19,202 23,510 -- 120,271
Loans:
Adjustable-rate mortgages ........................ -- 1,018 10,447 1,332,795
Fixed-rate mortgages .............................. 96,221 76,818 411 424,379
Commercial and consumer loans ..................... 8 30 8 12,242
--------- -------- -------- ----------
Total loans .................................... 96,229 77,866 10,866 1,769,416
--------- -------- -------- ----------
Total interest-earning assets .................. 115,431 101,376 10,866 2,076,642
Total non-interest-earning assets ............... -- -- 68,764 68,764
--------- -------- -------- ----------
Total assets .................................... $ 115,431 $101,376 $ 79,630 $2,145,406
========= ======== ======== ==========
Interest-bearing liabilities:
Customer deposits:
Money market and NOW accounts ..................... 29,175 19,443 21,436 99,232
Passbook accounts ................................. 60,207 40,152 -- 160,557
Certificate accounts .............................. 230 -- -- 936,103
--------- -------- -------- ----------
Total customer deposits ........................ 89,612 59,595 21,436 1,195,892
Borrowings:
FHLB advances .................................... 1,484 -- -- 671,484
Trust Preferred ................................. -- 116,000 -- 116,000
Other borrowings ................................. -- -- -- 30,000
--------- -------- -------- ----------
Total borrowings ................................. 1,484 116,000 -- 817,484
--------- -------- -------- ----------
Total interest-bearing liabilities ............... 91,096 175,595 21,436 2,013,376
Total non-interest-bearing liabilities ............ -- -- 32,385 32,385
Shareholders' equity .............................. -- -- 99,645 99,645
--------- -------- -------- ----------
Total liabilities and shareholders' equity ...... $ 91,096 $175,595 $153,466 $2,145,406
========= ======== ======== ==========
Total interest-earning assets less interest-bearing
liabilities ("GAP") .............................. $ 24,335 $(74,219) $(73,836) $ --
========= ======== ======== ==========
Ratio of GAP to total assets ..................... 1.13% (3.46)% (3.44)% --
========= ======== ======== ==========
Cumulative excess (deficiency) of interest-earning
assets over interest-bearing liabilities ......... $ 148,055 $ 73,836
========= ========
Cumulative excess (deficiency) of interest-earning
assets over interest-bearing liabilities, as a
percentage of total assets ... 6.90% 3.44%
========= ========
- ---------------
(1) In preparing the table above, certain assumptions have been made with
regard to the repricing or maturity of certain assets and liabilities.
Assumptions as to prepayments on first and second mortgage loans and
mortgage-backed securities were obtained from prepayment rate tables that
provide assumptions correlating to recent actual repricing experienced in
the marketplace. Assumptions have also been made with regard to payments
on tax certificates based on historical experience. Money market, NOW and
passbook accounts are assumed to decay based upon duration estimates
utilized in the OTS Interest Rate Risk Model. All other assets and
liabilities have been repriced based on the earlier of repricing or
contractual maturity. The mortgage prepayment rate tables, deposit decay
rates and the historical assumptions used regarding payments on tax
certificates should not be regarded as indicative of the actual repricing
that may be experienced by the Company.
4
YIELDS EARNED AND RATES PAID. The following table sets forth certain
information relating to the categories of the Company's interest-earning assets
and interest-bearing liabilities for the periods indicated. All yield and rate
information is calculated on an annualized basis by dividing the income or
expense item for the period by the average balances during the period of the
appropriate balance sheet item. Net interest margin is calculated by dividing
net interest income by average interest-earning assets. Non-accrual loans are
included for the appropriate periods, whereas recognition of interest on such
loans is discontinued and any remaining accrued interest receivable is
reversed, in conformity with generally accepted accounting principles and
federal regulations. The yields and net interest margins appearing in the
following table have been calculated on a pre-tax basis.
AS OF
9/30/97
YIELD/RATE
-----------
(DOLLARS IN THOUSANDS)
Interest-earning assets:
Loans receivable, net ............... 7.44%
Mortgage-backed securities ......... 6.86
Short-term investments (1) ......... 6.30
Tax certificates ..................... 8.09
Long-term investments and FHLB
stock, net ........................ 7.05
-----
Total interest-earning assets ...... 7.36
-----
Interest-bearing liabilities:
NOW/Money Market ..................... 2.63
Savings .............................. 4.66
Certificate of deposits ............ 5.72
Trust preferred securites ............ 10.17
FHLB advances and other
borrowings ........................ 5.86
-----
Total interest-bearing
liabilities ..................... 5.79
-----
Excess of interest-earning assets over
interest-bearing liabilities .........
Net interest income ..................
Interest rate spread .................. 1.57%
=====
Net interest margin .................. 1.74%
=====
Ratio of interest-earning assets to
interest-bearing liabilities .........
FOR THE YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------------------------------
1997 1996 1995
------------------------------------- ----------------------------------- --------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE
--------------- ---------- ---------- ------------- ---------- ---------- -------------
(DOLLARS IN THOUSANDS)
Interest-earning assets:
Loans receivable, net ............... $ 1,217,181 $ 94,655 7.78% $ 540,313 $41,313 7.65% $ 419,501
Mortgage-backed securities ......... 103,389 7,035 6.80 62,711 4,250 6.78 59,204
Short-term investments (1) ......... 27,612 1,613 5.84 41,240 2,359 5.72 23,884
Tax certificates ..................... 41,162 3,171 7.70 34,831 3,018 8.66 37,377
Long-term investments and FHLB
stock, net ........................ 33,161 2,300 6.94 17,352 1,192 6.87 7,930
----------- -------- ----- --------- -------- ---- ---------
Total interest-earning assets ...... 1,422,505 108,774 7.65 696,447 52,132 7.49 547,856
----------- -------- ----- --------- -------- ---- ---------
Interest-bearing liabilities:
NOW/Money Market ..................... 91,515 2,236 2.44 33,148 775 2.34 41,196
Savings .............................. 137,912 6,342 4.60 59,965 2,627 4.38 55,950
Certificate of deposits ............ 735,008 41,558 5.65 313,521 17,389 5.55 276,564
Trust preferred securites ............ 63,008 6,473 10.27 -- -- -- --
FHLB advances and other
borrowings ........................ 335,112 19,351 5.77 235,264 13,831 5.88 144,052
----------- -------- ----- --------- -------- ---- ---------
Total interest-bearing
liabilities ..................... 1,362,555 75,960 5.58 641,898 34,622 5.39 517,762
----------- -------- ----- --------- -------- ---- ---------
Excess of interest-earning assets over
interest-bearing liabilities ......... $ 59,950 $ 54,549 $ 30,094
=========== ========= =========
Net interest income .................. $ 32,814 $17,510
======== ========
Interest rate spread .................. 2.07% 2.10%
===== ====
Net interest margin .................. 2.31% 2.51%
===== ====
Ratio of interest-earning assets to
interest-bearing liabilities ......... 104.40% 108.50% 105.81%
=========== ========= =========
YIELD/
INTEREST RATE
---------- ----------
Interest-earning assets:
Loans receivable, net ............... $30,171 7.19%
Mortgage-backed securities ......... 4,093 6.91
Short-term investments (1) ......... 1,491 6.25
Tax certificates ..................... 3,087 8.26
Long-term investments and FHLB
stock, net ........................ 577 7.29
-------- ----
Total interest-earning assets ...... 39,419 7.20
-------- ----
Interest-bearing liabilities:
NOW/Money Market ..................... 875 2.12
Savings .............................. 2,420 4.33
Certificate of deposits ............ 14,554 5.26
Trust preferred securites ............ -- --
FHLB advances and other
borrowings ........................ 8,456 5.87
-------- ----
Total interest-bearing
liabilities ..................... 26,305 5.08
-------- ----
Excess of interest-earning assets over
interest-bearing liabilities .........
Net interest income .................. $13,114
========
Interest rate spread .................. 2.12%
====
Net interest margin .................. 2.39%
====
Ratio of interest-earning assets to
interest-bearing liabilities .........
- ---------------
(1) Short-term investments include FHLB overnight deposits, securities
purchased under agreements to resell, federal funds sold and certificates
of deposit.
5
RATE/VOLUME ANALYSIS. The following table presents, for the periods
indicated, the changes in interest income and the changes in interest expense
attributable to the changes in interest rates and the changes in the volume of
interest-earning assets and interest-bearing liabilities. For each category of
interest-earning assets and interest-bearing liabilities, information is
provided on changes attributable to: (i) changes in volume (change in volume
multiplied by prior year rate); (ii) changes in rate (change in rate multiplied
by prior year volume); (iii) changes in rate/volume (change in rate multiplied
by change in volume); and (iv) total changes.
YEAR ENDED SEPTEMBER 30,
------------------------------------------------
1997 V. 1996
------------------------------------------------
INCREASE (DECREASE)
DUE TO
------------------------------------------------
CHANGES CHANGES CHANGES TOTAL
IN IN IN INCREASE
VOLUME RATE RATE/VOLUME (DECREASE)
----------- --------- ------------- ------------
(DOLLARS IN THOUSANDS)
Interest income attributable to:
Loans ........................... $52,842 $ 53 $ 447 $53,342
Mortgage-backed securities and
collateralized mortgage
obligations ..................... 2,757 17 11 2,785
Short-term investments (1) ...... (780) 49 (15) (746)
Tax Certificates .................. 549 (335) (61) 153
Long-term investments and
FHLB stock ..................... 1,078 28 2 1,108
------- ------ -------- -------
Total interest-earning assets ... 56,446 (188) 384 56,642
------- ------ -------- -------
Interest expense attributable to:
NOW/Money Market .................. 1,365 35 61 1,461
Savings ........................... 3,415 131 169 3,715
Certificates of Deposit ............ 23,377 338 454 24,169
Trust preferred securities ......... -- -- 6,473 6,473
FHLB advances and other
borrowings ........................ 5,855 (233) (102) 5,520
------- ------ -------- -------
Total interest-bearing
liabilities ..................... 34,012 271 7,055 41,338
------- ------ -------- -------
Increase (decrease) in net interest
income ........................... $22,434 $ (459) $ (6,671) $15,304
======= ====== ======== =======
YEAR ENDED SEPTEMBER 30,
---------------------------------------------
1996 V. 1995
---------------------------------------------
INCREASE (DECREASE)
DUE TO
---------------------------------------------
CHANGES CHANGES CHANGES TOTAL
IN IN IN INCREASE
VOLUME RATE RATE/VOLUE (DECREASE)
---------- --------- ------------ -----------
Interest income attributable to:
Loans ........................... $ 8,689 $1,905 $548 $11,142
Mortgage-backed securities and
collateralized mortgage
obligations ..................... 242 (81) (4) 157
Short-term investments (1) ...... 1,088 (127) (93) 868
Tax Certificates .................. (210) 152 (11) (69)
Long-term investments and
FHLB stock ..................... 687 (33) (39) 615
------- ------ ------ -------
Total interest-earning assets ... 10,496 1,816 401 12,713
------- ------ ------ -------
Interest expense attributable to:
NOW/Money Market .................. (171) 88 (17) (100)
Savings ........................... 173 31 3 207
Certificates of Deposit ............ 1,946 785 104 2,835
Trust preferred securities ......... -- -- --
FHLB advances and other
borrowings ........................ 5,354 13 8 5,375
------- ------ ------ -------
Total interest-bearing
liabilities ..................... 7,302 917 98 8,317
------- ------ ------ -------
Increase (decrease) in net interest
income ........................... $ 3,194 $ 899 $303 $ 4,396
======= ====== ====== =======
- ---------------
(1) Short-term investments include FHLB overnight deposits, securities
purchased under agreements to resell, federal funds sold and certificates
of deposit.
6
LENDING ACTIVITIES
The Company focuses its lending activity on purchasing and originating
single-family residential mortgage loans. The Company's lending strategy also
includes expanding its commercial real estate, commercial business, and real
estate construction lending. The Company also currently offers consumer loans,
such as automobile loans and boat loans, primarily as an accommodation to
existing customers.
LOAN PORTFOLIO. The Company's loan portfolio primarily consists of
adjustable-rate mortgage loans ("ARMs") and, to a lesser extent, fixed-rate
mortgage loans secured by one-to-four family residential and commercial real
estate. As of September 30, 1997, the Company's loan portfolio totaled $1.8
billion, of which $1.6 billion or 88.3 % consisted of one-to-four family
residential first mortgages. At the present time, the Company's residential
real estate loans are primarily "conventional" loans not insured by the Federal
Housing Administration (the "FHA") or guaranteed by the Veterans Administration
(the "VA"). The Company is, however, approved to originate FHA and VA loans. As
of September 30, 1997, the remainder of the Company's loan portfolio consisted
of $130.2 million of commercial real estate loans (7.4 % of total loans);
five-or-more units residential real estate loans of $32.2 million (1.8 % of
total loans, net); $6.0 million of second mortgage loans (.3 % of total loans,
net); $1.7 million of consumer loans (.1% of total loans, net); $10.9 million
of commercial business loans (.6 % of total loans, net); and $15.5 million of
other loans (.9% of total loans, net).
At September 30, 1997, the Company's loan portfolio included $93.9 million
of residential mortgage loans to non-resident aliens. See "Residential Mortgage
Loan Purchases and Originations" for additional information on the Company's
loans to non-resident aliens.
Set forth below is a table showing the Company's loan origination,
purchase and sale activity for the periods indicated.
YEAR ENDED SEPTEMBER 30,
------------------------------------------
1997 1996 1995
------------ ------------ ------------
(IN THOUSANDS)
Total loans receivable, net, at beginning of period (1) ...... $ 646,385 $ 453,350 $ 413,287
Loans originated:
Residential real estate .................................... 159,533 65,954 54,438
Commercial business and consumer ........................... 18,804 16,705 7,556
---------- --------- ---------
Total loans originated .................................... 178,337 82,659 61,994
Loans acquired in Suncoast/Bank of Florida mergers (2) ...... 341,394 8,116 --
Loans purchased (3) .......................................... 913,653 242,099 76,081
Loans sold ................................................... (39,934) (4,356) (2,449)
Principal repayments and amortization of discounts
and premiums ................................................ (271,212) (133,836) (93,787)
Loans charged off ............................................. (604) (493) (594)
Transfers to real estate owned, net ........................... (2,296) (1,154) (1,182)
---------- --------- ---------
Total loans receivable, net, at end of period(1) ............ $1,765,723 $ 646,385 $ 453,350
========== ========= =========
- ----------------
(1) Includes loans held for sale.
(2) Loans acquired in the Suncoast merger included $230.7 million of
one-to-four family residential real estate loans, $95.8 million of
commercial real estate loans and $14.9 million of other types of loans.
(3) All loans purchased are one-to-four family residential real estate loans
except for the purchase of $32.0 million of commercial real estate loans
in fiscal 1996.
7
The following table sets forth certain information with respect to the
composition of the Company's loan portfolio, including mortgage loans held for
sale, as of the dates indicated.
AS OF SEPTEMBER 30,
-----------------------------------------------
1997 1996
------------------------ ----------------------
AMOUNT PERCENT AMOUNT PERCENT
-------------- --------- ------------ ---------
(DOLLARS IN THOUSANDS)
First mortgage loans:
One-to four-family
residential loans ...... $1,559,823 88.3% $568,203 87.9%
Five or more units
residential loans ...... 32,163 1.8 12,559 2.0
Commercial ............... 130,197 7.4 49,318 7.6
Construction ............ 7,477 .4 -- --
Land ..................... 7,997 .5 2,687 .4
Second mortgages loans . 5,992 .3 2,748 .4
---------- ----- -------- -----
Total first
and second
mortgage loans ......... 1,743,649 98.7 635,515 98.3
---------- ----- -------- -----
Consumer loans ............ 1,748 .1 2,687 .4
Commercial business
loans ..................... 10,890 .6 5,822 .9
---------- ----- -------- -----
Total loans
receivable ............ 1,756,287 99.4 643,985 99.6
---------- ----- -------- -----
Deferred loan fees,
premiums and
(discounts) ............... 13,129 .8 4,558 .7
Allowance for loan losses (3,693) ( .2) (2,158) ( .3)
---------- ----- -------- -----
Loans receivable,
net ..................... $1,765,723 100.0% $646,385 100.0%
========== ===== ======== =====
1995 1994 1993
---------------------- ---------------------- -----------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------------ --------- ------------ --------- ------------ ----------
First mortgage loans:
One-to four-family
residential loans ...... $432,472 95.4% $393,933 95.3% $298,342 96.1%
Five or more units
residential loans ...... 1,124 0.2 2,164 0.5 705 0.2
Commercial ............... 10,223 2.3 4,469 1.1 748 0.2
Construction ............ 200 0.1 -- -- 2,248 0.7
Land ..................... 450 0.1 1,095 0.3 1,099 0.4
Second mortgages loans . 2,412 0.5 2,616 0.6 623 0.2
-------- ----- -------- ----- -------- -----
Total first
and second
mortgage loans ......... 446,881 98.6 404,277 97.8 303,765 97.8
-------- ----- -------- ----- -------- -----
Consumer loans ............ 920 0.2 2,336 0.6 2,786 0.9
Commercial business
loans ..................... 3,632 0.8 4,732 1.1 3,665 1.2
-------- ----- -------- ----- -------- -----
Total loans
receivable ............ 451,433 99.6 411,345 99.5 310,216 99.9
-------- ----- -------- ----- -------- -----
Deferred loan fees,
premiums and
(discounts) ............... 3,386 0.7 2,783 0.7 1,409 0.5
Allowance for loan losses (1,469) ( 0.3) (841) ( 0.2) (1,184) ( 0.4)
-------- ----- -------- ----- -------- -----
Loans receivable,
net ..................... $453,350 100.0% $413,287 100.0% $310,441 100.0%
======== ===== ======== ===== ======== =====
The following table sets forth, as of September 30, 1997, the amount of
loans (including mortgage loans held for sale) by category and expected
principal repayments by year.
OUTSTANDING AT
SEPTEMBER 30, 1997 1998 1999
-------------------- ---------- ----------
(DOLLARS IN THOUSANDS)
First mortgage loans:
One-to-four family residential $1,559,823 $343,918 $257,389
Five-or-more units residential . 32,163 4,312 3,751
Commercial ........................ 130,197 68,154 19,612
Construction ..................... 7,477 5,301 1,394
Land .............................. 7,997 5,571 2,239
Second mortgage loans ............... 5,992 1,315 1,122
---------- -------- --------
Total first and second mortgage
loans ........................... 1,743,649 428,571 285,507
---------- -------- --------
Consumer loans ..................... 1,748 1,043 705
Commercial business loans ......... 10,890 7,723 3,167
---------- -------- --------
Total loans ..................... $1,756,287 $437,337 $289,379
========== ======== ========
2002- 2004- 2008 AND
2000 2001 2003 2007 THEREAFTER
---------- ---------- ---------- ---------- -----------
First mortgage loans:
One-to-four family residential $198,224 $153,567 $213,382 $216,351 $176,992
Five-or-more units residential . 6,674 2,399 3,894 11,133 --
Commercial ........................ 11,239 11,239 9,978 9,975 --
Construction ..................... 764 18 -- -- --
Land .............................. 95 92 -- -- --
Second mortgage loans ............... 956 812 1,265 522 --
-------- -------- -------- -------- ---------
Total first and second mortgage
loans ........................... 217,952 168,127 228,519 237,981 176,992
-------- -------- -------- -------- ---------
Consumer loans ..................... -- -- -- -- --
Commercial business loans ......... -- -- -- -- --
-------- -------- -------- -------- ---------
Total loans ..................... $217,952 $168,127 $228,519 $237,981 $176,992
======== ======== ======== ======== =========
Applicable regulations permit the Company to engage in various categories
of secured and unsecured commercial and consumer lending, in addition to
residential real estate financing, subject to limitations on the percentage of
total assets attributable to certain categories of loans. An additional
limitation imposed by regulation requires that certain types of loans only be
made in aggregate amounts that do not exceed specified percentages of the
institution's capital. As of September 30, 1997, 33.7% of the Company's gross
loans receivable (27.8% of total assets) were secured by properties located in
Florida and 13.8 % of gross loans receivable (11.4% of total assets) were
secured by properties located in California. Because of this concentration,
regional economic circumstances in those states could affect the level of the
Company's non-performing loans.
8
The following table sets forth, as of September 30, 1997 the distribution
of the amount of the Company's loans (including mortgage loans held for sale)
by state.
OUTSTANDING ON
STATE SEPTEMBER 30, 1997
- ------------------------------------- -------------------
(IN THOUSANDS)
Florida(l) ..................... $ 596,327
California ..................... 243,722
Illinois ........................ 95,141
Michigan ........................ 90,447
Colorado ........................ 66,069
Massachusetts .................. 61,652
Virginia ........................ 59,046
Maryland ........................ 49,529
New Jersey ..................... 48,182
Texas ........................... 39,678
Ohio ........................... 36,801
New York ........................ 34,569
Arizona ........................ 34,470
Georgia ........................ 34,273
Connecticut ..................... 33,096
Pennsylvania ..................... 28,928
Washington ..................... 27,613
North Carolina .................. 17,146
Missouri ........................ 15,677
Minnesota ........................ 12,472
Utah ........................... 11,239
Tennessee ........................ 10,822
Oregon ........................... 10,054
Nevada ........................... 9,465
South Carolina .................. 8,839
Kentucky ........................ 7,261
Indiana ........................ 7,204
Washington, DC .................. 6,873
Kansas ........................... 6,073
Wisconsin ........................ 4,913
Alabama ........................ 4,867
Oklahoma ........................ 4,273
New Mexico ..................... 3,502
Rhode Island ..................... 2,981
Louisiana ........................ 2,637
Idaho ........................... 2,612
Hawaii ........................... 2,036
Maine ........................... 1,664
Alaska ........................... 1,654
Arkansas ........................ 1,606
Mississippi ..................... 1,505
Iowa ........................... 1,216
New Hampshire .................. 1,211
Others(2) ........................ 3,912
Not secured by real estate ...... 13,030
----------
Total ........................... $1,756,287
==========
- ----------------
(1) Does not include $49.3 million of tax certificates representing liens
secured by properties in Florida.
(2) Less than $1 million in any one state.
9
RESIDENTIAL MORTGAGE LOAN PURCHASES AND ORIGINATIONS. The Company's
lending primarily involves purchasing in the secondary mortgage market and
originating loans secured by first mortgages on real estate improved with
single-family dwellings. The Company's first mortgage loans purchased or
originated are generally repayable over 15 or 30 years. Additionally, the
Company offers second mortgage residential loans with maturities ranging from
five to 15 years. Residential loans typically remain outstanding for shorter
periods than their contractual maturities because borrowers prepay the loans in
full upon sale of the mortgaged property or upon refinancing of the original
loan. The Company currently originates and purchases fixed-rate and
adjustable-rate first mortgage loans secured by owner-occupied residences with
15-year term or 30-year term amortization, and second mortgage loans with
15-year term amortization or 30-year term amortization with a balloon payment
after five years.
The Company's ARMs generally have interest rates that adjust monthly,
semi-annually or annually at a margin over the weekly average yield on U.S.
Treasury securities adjusted to a constant maturity of one year published by
the Federal Reserve or the Eleventh District Cost of Funds Index ("COFI"). The
maximum interest rate adjustment of the Company's ARMs is generally 1%
semi-annually and 6% over the life of the loan, above or below the initial rate
on the loan for semi-annual adjustables, or 2% annually and 6% over the life of
the loan, above or below the initial rate on the loan for annual adjustables.
The Company's COFI loans with monthly adjustable interest rates generally
provide for a 7.5% cap on monthly payment increases from one annual payment
adjustment to the next, except at the end of five years, when monthly payments
may be adjusted by more than the payment increase cap in order to provide for
the complete amortization by maturity. Because of the payment cap and the
different times at which interest rate adjustments and payment adjustments are
made on these loans, monthly payments on certain loans may not be sufficient to
pay the interest accruing on the loan. The amount of any shortage is added to
the principal balance of the loan to be repaid through future monthly payments
to the Company ("negative amortization"). If the loan-to-value ratio is high,
negative amortization could significantly increase the risk associated with the
loan; the Company's management, however, believes that this risk is mitigated
due to the relative stability of the index used and to conservative
underwriting policies.
The Company generally purchases or originates loans with "teaser" rates
that are below market rates during an initial period after the loan is
originated. For loans with teaser rates, the borrower's ability to repay is
determined upon fully indexed rates. The Company underwrites these loans
pursuant to its underwriting guidelines prior to purchase. As of September 30,
1997 there were approximately $538.7 million of loans with teaser rates.
Applicable regulations permit the Company to lend up to 100% of the
appraised value of the real property securing a loan ("loan-to-value ratio").
The Company, however, generally does not make or acquire loans with
loan-to-value ratios that exceed 80% at origination. When terms are favorable,
the Company may purchase or originate single-family mortgage loans with
loan-to-value ratios between 80% and 95%. In most of these cases, the Company
will, as a matter of policy, require the borrower to obtain private mortgage
insurance which insures that portion of the loan exceeding the 80% loan-to-value
ratio, thereby reducing the risk to no more than 80% of appraised value.
The Company generally applies the same underwriting criteria to
residential mortgage loans purchased or originated. In its loan purchases, the
Company generally reserves the right to reject particular loans from a loan
package being purchased and does reject loans in a package that do not meet its
underwriting criteria. In determining whether to purchase or originate a loan,
the Company assesses both the borrower's ability to repay the loan and the
adequacy of the proposed collateral. On originations, the Company obtains
appraisals of the property securing the loan. On purchases, the Company reviews
the appraisal obtained by the loan seller or originator and arranges for an
updated review appraisal before purchasing the loan. On purchases and
originations, the Company reviews information concerning the income, financial
condition, employment and credit history of the applicant. On purchases, the
Company generally obtains a credit report on the borrower separate from that
provided by the loan seller.
10
The Company has adopted written, non-discriminatory underwriting standards
for use in the underwriting and review of every loan considered for origination
or purchase. These underwriting standards are reviewed and approved annually by
the Company's Board of Directors. The Company's underwriting standards for
residential mortgage loans generally conform (except as to principal balance
and with regard to certain loans discussed below, as to the borrower's
citizenship and related factors) to standards established by Fannie Mae
("FNMA") and the Federal Home Loan Mortgage Corporation (the "FHLMC"). A loan
application is obtained or reviewed by the Company's underwriters to determine
the borrower's ability to repay, and confirmation of the more significant
information is obtained through the use of credit reports, financial
statements, and employment and other verifications.
The Company generally uses appraisals to determine the value of collateral
for all loans it originates. When originating a real estate mortgage loan, the
Company obtains a new appraisal of the property from an independent third party
to determine the adequacy of the collateral, and such appraisal is reviewed by
one of the underwriters. With respect to a substantial percentage of loans
purchased, the collateral value is determined by reference to a review
appraisal. Otherwise, the collateral value is determined by reference to the
documentation contained in the original file. Borrowers are required to obtain
casualty insurance and, if applicable, flood insurance in amounts at least
equal to the outstanding loan balance or the maximum amount allowed by law.
The Company also requires that a survey be conducted and title insurance
be obtained, insuring the priority of its mortgage lien. Pursuant to its
underwriting standards, the Company generally requires private mortgage
insurance policies on newly originated mortgage loans with loan-to-value ratios
greater than 80%. All loans are reviewed by the Company's underwriters to
ensure that its guidelines are met or that waivers are obtained in limited
situations where offsetting factors exist.
With regard to loan purchases, a legal review of every loan file is
conducted to determine the adequacy of the legal documentation. The Company
receives various representations and warranties from the sellers of the loans
regarding the quality and characteristics of the loans.
At September 30, 1997, approximately $93.9 million, or 5.3%, of the
Company's gross loans receivable are first mortgage loans to non-resident
aliens secured by single-family residences located in Florida. These loans are
purchased and originated by the Company in a manner similar to that described
above for other residential loans. Loans to non-resident aliens generally
afford the Company an opportunity to receive rates of interest higher than
those available from other single-family residential loans. Nevertheless, such
loans generally involve a greater degree of risk than other single-family
residential mortgage loans. The ability to obtain access to the borrower is
more limited for non-resident aliens, as is the ability to attach or verify
assets located in foreign countries. The Company has attempted to minimize
these risks through its underwriting standards for such loans (including
generally lower loan-to-value ratios and qualification based on verifiable
assets located in the United States).
The Company has also established a correspondent mortgage banking
operation for the origination of single-family residential mortgage loans in
its market area. This correspondent operation consists of a network of mortgage
brokers and lenders in South Florida that generate mortgage loans for the
Company. Originations in the correspondent program, together with branch
lending, reached $159.5 million in fiscal 1997 and $66.0 million for the year
ended September 30, 1996.
Beginning in the Company's fiscal 1997 fourth quarter, management began a
program to sell approximately 50% to 75% of the Company's internally generated
residential loans. In the fourth quarter, a package of residential loans
totalling $30.1 million was sold for a gain of $523,000. In addition, as part
of starting this program, the Company reclassified $93.5 million of its
internally generated portfolio of residential loans as available for sale in
the fourth quarter. It is currently the Company's intention that future loans
classified as available for sale will be identified and so classified at time
of origination. Loans held for sale as of September 30, 1997 were $104.3
million.
11
COMMERCIAL REAL ESTATE LENDING. The Company's commercial real estate
lending division originates or purchases multi-family and commercial real
estate loans from approximately $250,000 to $5.0 million. The Company's
strategy is to promote commercial lending together with private banking, as
both areas seek to develop long-term relationships with select businesses, real
estate borrowers, and professionals. At September 30, 1997, the Company had
$130.2 million of commercial real estate loans, representing a total of 7.4% of
the Company's loan portfolio before net items. The Company's commercial real
estate loan portfolio includes loans secured by apartment buildings, office
buildings, warehouses, retail stores and other properties, which are located in
the Company's primary market area. Commercial real estate loans generally are
originated in amounts up to 75% of the appraised value of the property securing
the loan. In determining whether to originate or purchase multi-family or
commercial real estate loans, the Company also considers such factors as the
financial condition of the borrower and the debt service coverage of the
property. Commercial real estate loans are made at both fixed and adjustable
interest rates for terms of up to 10 years.
REAL ESTATE CONSTRUCTION LENDING. The Company makes real estate
construction loans to individuals for the construction of their residences, as
well as to builders and real estate developers for the construction of
one-to-four-family residences and commercial and multi-family real estate. At
September 30, 1997, the Company had $7.5 million of construction loans
representing a total of .4% of the Company's loan portfolio before net items.
COMMERCIAL BUSINESS LENDING. Commercial business loans totaled $10.9
million as of September 30, 1997 representing .6 % of total loans. In its
commercial business loan underwriting, the Company evaluates the value of the
collateral securing the loan and assesses the borrower's creditworthiness and
ability to repay. While commercial business loans generally are made for
shorter terms and at higher yields than one-to-four-family residential loans,
such loans generally involve a higher level of risk than one-to-four-family
residential loans because the risk of borrower default is greater and the
collateral may be more difficult to liquidate and more likely to decline in
value.
LOAN PORTFOLIO QUALITY. Federal regulations require a savings institution
to review its assets on a regular basis and, if appropriate, to classify assets
as "substandard," "doubtful," or "loss" depending on the likelihood of loss.
General allowances for loan losses are required to be established for assets
classified as substandard or doubtful. For assets classified as loss, the
institution must either establish specific allowances equal to the amount
classified as a loss or charge off such amount. Assets that do not require
classification as substandard but that possess credit deficiencies or potential
weaknesses deserving management's close attention are required to be designated
as "special mention." The deputy director of the appropriate OTS regional
office may approve, disapprove or modify any classifications of assets and any
allowance for loan losses established.
Additionally, under standard banking practices, an institution's asset
quality is also measured by the level of non-performing loans in the
institution's portfolio. Non-performing loans consist of (i) non-accrual loans;
(ii) loans that are more than 90 days contractually past due as to interest or
principal but that are well-secured and in the process of collection or renewal
in the normal course of business; and (iii) loans that have been renegotiated
to provide a deferral of interest or principal because of a deterioration in
the financial condition of the borrower. The Company issues delinquency notices
to borrowers when loans are 30 or more days past due. The Company places
conventional mortgage loans on non-accrual status when more than 90 days past
due, unless the loan is fully secured and in the process of collection. When a
loan is placed on non-accrual status, the Company reverses all accrued and
uncollected interest. The Company also begins appropriate legal procedures to
obtain repayment of the loan or otherwise satisfy the obligation.
12
As of September 30, 1997, the Company had $14.6 million in substandard
assets of which $14.3 million are included in non-performing assets.
Substandard assets consisted of the following:
AS OF SEPTEMBER 30, 1997
-------------------------
(IN THOUSANDS)
One-to-four family residential loans ...... $10,087
Commercial real estate ..................... 2,517
Consumer and business loans ............... 150
REO ....................................... 611
Tax certificates ........................... 1,247
-------
Total Substandard Assets .................. $14,612
=======
In addition, $336,000 of tax certificates, for which reserves have been
established, were classified as loss as of September 30, 1997.
The following table sets forth information regarding the Company's
allowance for loan losses for the periods indicated:
FOR THE YEARS ENDED SEPTEMBER 30,
-------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- --------- ----------- ---------
(IN THOUSANDS)
Allowance for loan losses, balance (at beginning of
period) ................................................... $2,158 $1,469 $ 841 $ 1,184 $ 265
Provisions (credit) for loan losses ........................ 1,295 (120) 1,221 1,187 1,052
Allowance from Suncoast/Bank of Florida ..................... 775 183 -- -- --
Allocation from discounts on loans purchased ............... -- -- -- -- 90
Loans charged off:
One-to-four family residential loans ........................ (604) (493) (535) (1,582) (223)
Commercial and other ....................................... -- -- (59) -- --
------ ------ ------ -------- ------
Total (604) (493) (594) (1,582) (223)
------ ------ ------ -------- ------
Recoveries:
One-to-four family residential loans ........................ 48 1,119 1 52 --
Commercial and other ....................................... 21 -- -- -- --
------ ------ ------ -------- ------
Total 69 1,119 1 52 --
------ ------ ------ -------- ------
Allowance for loan losses, balance (at end of period) ...... $3,693 $2,158 $1,469 $ 841 $1,184
====== ====== ====== ======== ======
Historically, recoveries of charged off loans have been minimal since
charged off loans have been primarily one-to-four family residential loans and
typically the only substantial asset available to the Company is the real
estate securing the loan which is acquired through foreclosure and sold.
However, in its fiscal year ended September 30, 1996, the Company received a
recovery of approximately $1.0 million as settlement of litigation the Company
initiated against a seller of residential mortgage loans. The Company is not
aware of any significant liability related to REO or loans that may be
foreclosed.
13
The following table sets forth the allocation of general allowance for
loan losses by loan category for the periods indicated.
AS OF SEPTEMBER 30,
-----------------------------------------------------------------------------
1997 1996 1995
------------------------ ------------------------ -----------------------
% OF LOANS % OF LOANS % OF LOANS
IN EACH IN EACH IN EACH
CATEGORY TO CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
-------- ------------- -------- ------------- -------- ------------
(DOLLARS IN THOUSANDS)
Balance at end of period
applicable to:
One-to-four family residential
mortgages ........................... $1,873 89.2% $1,381 88.6% $1,207 95.9%
Commercial and other loans ............ 1,787 10.8 739 11.4% 168 4.1%
Unallocated ........................... 33 N/A 38 N/A 94 N/A
------ ---- ------ ---- ------ ----
Total allowances for loan losses ...... $3,693 100.0% $2,158 100.0% $1,469 100.0%
====== ===== ====== ===== ====== =====
For additional information regarding the Company's allowance for loan
losses and the credit quality of the Company's assets, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Description of Financial Condition Changes for the Years Ended
September 30, 1997, 1996, and 1995--Credit Quality."
INVESTMENTS AND MORTGAGE-BACKED SECURITIES
The Company maintains an investment portfolio consisting primarily of
federal agency securities, FHLB overnight deposits, securities purchased under
agreements to resell and tax certificates. Federal regulations limit the
instruments in which the Company may invest its funds. The Company's current
investment policy permits purchases only of investments (with the exception of
tax certificates) rated in one of the three highest grades by a nationally
recognized rating agency and does not permit purchases of securities of
non-investment grade quality (such as so-called "junk bonds").
The Company's portfolio also includes tax certificates issued by various
counties in the State of Florida. Tax certificates represent tax obligations
that are auctioned by county taxing authorities on an annual basis in order to
collect delinquent real estate taxes. Although tax certificates have no stated
maturity, the certificate holder has the right to collect the delinquent tax
amount, plus interest, and can file for a tax deed if the delinquent tax amount
is unpaid at the end of two years. Tax certificates have a claim superior to
most other liens. If the holder does not file for deed within seven years, the
certificate becomes null and void. The Company has adopted detailed policies
with regard to its investment in tax certificates, which specify due diligence
procedures, purchasing procedures (including parameters for the location, type
and size of tax certificates acceptable for purchase) and procedures for
managing the portfolio after acquisition.
Mortgage-backed securities are primarily acquired for their liquidity,
yield, and credit characteristics. Such securities may be used as collateral
for borrowing or pledged as collateral for certain deposits, including public
funds deposits. Mortgage-backed securities acquired include fixed and
adjustable rate agency securities (GNMA, FNMA and FHLMC), private issue
securities and collateralized mortgage obligations.
14
The following table sets forth information regarding the Company's
investments and mortgage-backed securities as of the dates indicated. Amounts
shown are historical amortized cost. For additional information regarding the
Company's investments and mortgage-backed securities, including the carrying
values and approximate market values of such securities, see Notes 1 and 5 of
the Notes to Consolidated Financial Statements.
AS OF SEPTEMBER 30,
---------------------------------------------
1997 1996 1995
------------- ------------- -------------
(DOLLARS IN THOUSANDS)
Federal funds sold ............... $ -- $ 400 $ 400
Federal agency securities ......... 23,283 4,985 4,675
FHLB overnight deposits ............ 79,413 28,253 31,813
Tax certificates .................. 49,283 40,088 39,544
Mortgage-backed securities ......... 120,271 70,165 52,998
Other .............................. 1,377 1,711 11
--------- --------- ---------
Total investment securities ...... $ 273,627 $ 145,602 $ 129,441
========= ========= =========
Weighted average yield ............ 6.91% 7.09% 7.43%
========= ========= =========
The following table sets forth information regarding the maturities of the
Company's investments as of September 30, 1997. Amounts shown are book values.
PERIODS TO MATURITY
FROM SEPTEMBER 30, 1997
---------------------------------------------------------
AS OF WITHIN 1 THROUGH 5 THROUGH OVER
SEPTEMBER 30, 1997 1 YEAR 5 YEARS 10 YEARS 10 YEARS
------------------- -------------- ----------- ----------- ------------
(IN THOUSANDS)
Federal agency securities ...... $ 23,283 $ -- $ 23,283 $ -- $ --
FHLB overnight deposits ......... 79,413 79,413 -- -- --
Mortgage-backed securities ...... 120,271 31,071 46,488 19,202 23,510
Tax certificates (1) ............ 49,283 49,283 -- -- --
Other ........................... 1,377 254 1,113 10 --
--------- ---------- -------- -------- --------
Total ........................... $ 273,627 $ 160,021 $ 70,884 $ 19,212 $ 23,510
========= ========== ======== ======== ========
Weighted average yield ......... 6.91% 6.97% 6.70% 7.06% 7.06%
========= ========== ======== ======== ========
- ----------------
(1) Maturities are based on historical experience.
MORTGAGE LOAN SERVICING
Prior to November 1996, the Company primarily serviced mortgage loans only
for its portfolio. With the acquisition of Suncoast on November 15, 1996, the
Company acquired a servicing portfolio consisting of 19,487 loans owned by
outside investors.
Servicing agreements generally provide for loan servicing fees ranging
from 0.25% to 0.50% per annum of the declining principal amount of the loans,
plus any late charges or other ancillary fees. Loan servicing fees for loans
serviced under mortgage-backed securities programs are either subject to
negotiation with the sponsoring agency or in certain instances set by the
sponsoring agency. Servicing fees for loans sold to private investors are
determined by agreement with the investor. Income from servicing is calculated
based upon the contractual servicing fee, net of amortization of the carrying
value of the loan servicing rights.
The Company is subject to certain costs and risks related to servicing
delinquent loans. Servicing agreements relating to the mortgage-backed security
programs of FNMA and FHLMC require the servicer to advance funds to make
scheduled payments of interest, taxes and insurance, and in some instances
principal, if such payments have not been received from the borrowers. However,
the
15
Company recovers substantially all of the advanced funds upon cure of default
by the borrower, or through foreclosure proceedings and claims against agencies
or companies that have insured or guaranteed the loans. Certain servicing
agreements for loans sold directly to other investors require the Company to
remit funds to the loan purchaser only upon receipt of payments from the
borrower and, accordingly, the investor bears the risk of loss. The Company,
however, is subject to the risk that declines in the market rates of interest
for mortgage loans or other economic conditions will result in a revaluation of
its servicing assets as borrowers refinance or otherwise prepay higher interest
rate loans.
The following table sets forth, by category of investor, the composition
of the acquired servicing portfolios of the Company as of the dates indicated:
NOVEMBER 15, 1996
SEPTEMBER 30, 1997 (SUNCOAST ACQUISITION)
-------------------------------- ----------------------------------
# OF BOOK # OF BOOK
LOANS PRINCIPAL VALUE LOANS PRINCIPAL VALUE
------- ----------- -------- -------- ------------ --------
(IN THOUSANDS)
GNMA ........................ -- $ -- $ -- 5,791 $ 299,183 $ 4,952
FNMA ........................ 1,297 102,805 1,514 1,462 117,856 1,690
FHLMC ..................... 2,903 246,557 2,318 3,425 295,392 2,758
Private investors ......... 472 68,906 951 337 50,741 626
FDIC/RTC-subservicing ...... -- -- -- 7,087 150,317 --
Private subservicing ...... 320 14,275 -- 1,385 190,350 --
----- --------- ------ ----- ---------- -------
4,992 $432,543 $4,783 19,487 $1,103,839 $10,026
===== ========= ====== ====== ========== =======
In the second quarter of 1997, the GNMA mortgage servicing portfolio was
sold at its fair market value recognized in purchase accounting. As of August
31, 1997, the Company transferred the FDIC/ RTC subservicing portfolios to a
third party servicer. These actions were taken to increase the Company's
profitability from mortgage loan servicing.
SOURCES OF FUNDS
The Company's primary sources of funds for its investment and lending
activities are customer deposits, loan repayments, funds from operations, the
Company's capital (including trust preferred securities) and FHLB advances.
DEPOSITS. The Company offers a full variety of deposit accounts ranging
from passbook accounts to certificates of deposit with maturities of up to five
years. The Company also offers transaction accounts, which include commercial
checking accounts, negotiable order of withdrawal ("NOW") accounts, super NOW
accounts and money market deposit accounts. The rates paid on deposits are
established periodically by management based on the Company's need for funds
and the rates being offered by the Company's competitors with the goal of
remaining competitive without offering the highest rates in the market area.
The Company has not utilized brokered deposits.
The Company has placed increasing reliance on passbook accounts, money
market accounts, certificates of deposit and other savings alternatives that
are more responsive to market conditions than long-term, fixed-rate
certificates. While market-sensitive savings instruments permit the Company to
reduce its cost of funds during periods of declining interest rates, such
savings instruments also increase the Company's vulnerability to periods of
high interest rates. There are no regulatory interest rate ceilings on the
Company's accounts.
16
The following table sets forth information concerning the Company's
deposits by account type and the weighted average nominal rates at which
interest is paid thereon as of the dates indicated:
AS OF SEPTEMBER 30,
-------------------------------------------------------------------------
1997 1996 1995
------------------------- ----------------------- -------------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
------------ ---------- ---------- ---------- ---------- ------
(DOLLARS IN THOUSANDS)
Passbook accounts:
Regular .................................... $ 160,522 4.66% $ 73,741 4.44% $ 50,327 3.04%
Holiday club .............................. 35 2.00 39 2.00 46 2.00
---------- -------- --------
Total passbook accounts .................. 160,557 73,780 50,373
---------- -------- --------
Checking:
Insured money market ........................ 20,325 4.00 16,556 3.87 7,733 2.68
NOW and non-interest-bearing accounts ...... 78,907 2.28 24,566 1.49 18,157 2.17
---------- -------- --------
Total transaction accounts ............... 99,232 41,122 25,890
---------- -------- --------
Total passbook and checking accounts ...... 259,789 114,902 76,263
---------- -------- --------
Certificates:
30-89-day certificates of deposit ......... -- -- -- -- 91 2.73
3-5-month certificates of deposit ......... 18,674 4.94 7,114 4.67 1,465 4.78
6-8-month certificates of deposit ......... 439,091 5.67 159,850 5.40 93,684 5.65
9-11-month certificates of deposit ......... 15,721 5.66 20,279 5.45 5,654 5.55
12-17-month certificates of deposit ......... 307,305 5.73 124,637 5.49 79,637 5.90
18-23-month certificates of deposit ......... 20,410 5.80 12,375 5.79 12,382 5.37
24-29-month certificates of deposit ......... 58,279 5.84 42,875 5.94 18,593 5.57
30-35-month certificates of deposit ......... 12,517 5.85 1,774 5.57 2,868 4.99
36-60-month certificates of deposit ......... 64,106 6.07 22,300 5.93 19,437 5.81
---------- -------- --------
Total certificates ........................ 936,103 391,204 233,811
---------- -------- --------
Total .................................... $1,195,892 $506,106 $310,074
========== ======== ========
Weighted average rate .................. 5.32% 5.11% 4.99%
The following table sets forth information by various rate categories
regarding the amounts of the Company's certificate accounts (under $100,000) as
of September 30, 1997 that mature during the periods indicated:
PERIODS TO MATURITY
FROM SEPTEMBER 30, 1997
-----------------------------------------------
AS OF WITHIN 1 TO 2 TO MORE THAN
SEPTEMBER 30, 1997 1 YEAR 2 YEARS 3 YEARS 3 YEARS
------------------- ---------- --------- --------- ----------
(IN THOUSANDS)
Certificate accounts:
3.00% to 3.99% ......... $ 173 $ 173 $ -- $ -- $ --
4.00% to 4.99% ......... 17,414 17,144 270 -- --
5.00% to 5.99% ......... 706,619 637,978 59,921 5,599 3,121
6.00% to 6.99% ......... 54,220 15,892 8,793 3,478 26,057
7.00% to 7.99% ......... 814 10 47 706 51
-------- -------- ------- ------- --------
Total certificate accounts
(under $100,000) ...... $779,240 $671,197 $69,031 $9,783 $29,229
======== ======== ======= ======= ========
17
The following table sets forth information by various rate categories
regarding the amounts of the Company's jumbo ($100,000 and over) certificate
accounts as of September 30, 1997 that mature during the periods indicated:
PERIODS TO MATURITY
FROM SEPTEMBER 30, 1997
-----------------------------------------------
AS OF WITHIN 1 TO 2 TO MORE THAN
SEPTEMBER 30, 1997 1 YEAR 2 YEAR 3 YEARS 3 YEARS
------------------- ---------- --------- --------- ----------
(IN THOUSANDS)
Jumbo certificate accounts:
4.00% to 4.99% ........................ $ 3,317 $ 3,317 $ -- $ -- $ --
5.00% to 5.99% ........................ 135,714 125,217 9,996 401 100
6.00% to 6.99% ........................ 17,174 9,563 2,785 560 4,266
7.00% to 7.99% ........................ 658 150 100 408 --
-------- -------- ------- ------- ------
Total Jumbo certificate amounts ...... $156,863 $138,247 $12,881 $1,369 $4,366
======== ======== ======= ======= ======
Of the Company's total deposits at September 30, 1997, 1996, and 1995,
13.1%, 10.5%, and 8.6%, respectively, were deposits of $100,000 or more issued
to the public. Although jumbo certificates of deposit are generally more rate
sensitive than smaller size deposits, management believes that the Company will
retain these deposits.
In the 1997 and 1996 fiscal years, the Company opened four new branch
offices and acquired six branch offices (one of which was closed) from
Suncoast. In fiscal 1998, the Company intends to open as many as eight new
branch offices including two that opened in the first fiscal quarter. These
additional branches are part of the Company's rapid growth as it takes
advantage of the bank consolidation in South Florida.
BORROWINGS. When the Company's primary sources of funds are not sufficient
to meet deposit outflows, loan originations and purchases and other cash
requirements, the Company may borrow funds from the FHLB of Atlanta and from
other sources. The FHLB system acts as an additional source of funding for
savings institutions. In addition, the Company uses subordinated notes and
securities sold under agreements to repurchase in order to increase available
funds.
FHLB borrowings, known as "advances," are made on a secured basis, and the
terms and rates charged for FHLB advances vary in response to general economic
conditions. As a shareholder of the FHLB of Atlanta, the Bank is authorized to
apply for advances from this bank. A wide variety of borrowing plans are
offered by the FHLB of Atlanta, each with its own maturity and interest rate.
The FHLB of Atlanta will consider various factors, including an institution's
regulatory capital position, net income, quality and composition of assets,
lending policies and practices, and level of current borrowings from all
sources, in determining the amount of credit to extend to an institution. In
addition, an institution that fails to meet the qualified thrift lender test
may have restrictions imposed on its ability to obtain FHLB advances. The Bank
currently meets the qualified thrift lender test.
18
The following tables set forth information as to the Company's borrowings
as of the dates and for the periods indicated.
SEPTEMBER 30, 1997
-----------------------------------------------------------------------------
1997 1996 1995
----------------------- ---------------------- --------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE WEIGHTED
BALANCE RATE BALANCE RATE BALANCE AVERAGE RATE
---------- ---------- ---------- --------- ---------- -------------
(DOLLARS IN THOUSANDS)
PERIOD END BALANCES:
FHLB advances(l) ............... $671,484 5.87% $237,000 5.73% $241,000 5.92%
Company Obligated Mandatorily
Redeemable Trust Preferred
Securities of Subsidiary Trusts
Holding Solely Junior
Subordinated Deferrable
Interest Debentures of
the Company .................. 116,000 10.17 -- -- -- --
Subordinated notes ............ -- -- 775 9.00 775 9.00
Securities sold under agreements
to repurchase(2) ............ 30,000 5.64 -- -- -- --
-------- ----- -------- ---- -------- ----
Total borrowings ............... $817,484 6.47% $237,775 5.74% $241,775 5.93%
======== ===== ======== ==== ======== ====
FOR THE YEAR ENDED SEPTEMBER 30, 1997
--------------------------------------------------------------------------
1997 1996 1995
----------------------- ----------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
---------- ---------- ---------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
AVERAGE BALANCES:
FHLB advances(l) .................. $325,580 5.77% $234,489 5.77% $136,706 5.86%
Company Obligated Mandatorily
Redeemable Trust Preferred
Securities of Subsidiary Trusts
Holding Solely Junior Subordinated
Deferrable Interest Debentures of
the Company ..................... 63,008 10.27 -- -- -- --
Subordinated notes ............... 704 10.53 775 9.00 775 9.00
Securities sold under agreements to
repurchase(2) .................. 8,828 5.73 -- -- 6,571 5.59
-------- ----- -------- ---- -------- ----
Total borrowings .................. $398,120 6.49% $235,264 5.78% $144,052 5.86%
======== ===== ======== ==== ======== ====
- ----------------
(1) The maximum amount of FHLB advances outstanding during the years ended
September 30, 1997, 1996 and 1995 was $671.5 million, $244.0 million and
$246.0 million, respectively.
(2) The maximum amount of securities sold under agreements to repurchase at any
month-end during the years ended September 30, 1997, 1996, and 1995 was
$30.0 million, $0.0 million and $33.6 million, respectively.
ACTIVITIES OF SUBSIDIARIES
T&D Properties of South Florida, Inc., a Florida corporation ("T&D"), is a
wholly owned operating subsidiary of the Bank that invests in tax certificates
and holds title to, maintains, manages and supervises the disposition of real
property acquired through tax deeds. T&D was established in 1991 for the
purpose of insulating the Bank from risk of liability concerning the
maintenance, management and disposition of real property.
19
Bay Holdings, Inc., a Florida corporation ("Bay Holdings"), is a wholly
owned operating subsidiary of the Bank that holds title to, maintains, manages
and supervises the disposition of real property acquired through foreclosure.
Bay Holdings was established in 1994 for the purpose of insulating the Bank
from risk of liability concerning maintenance, management and disposition of
real property.
BU Ventures, Inc., a Florida corporation, is a wholly owned operating
subsidiary of the Company organized in 1994 to assume from T&D the
responsibility for the maintenance, management and disposition of real property
acquired through tax deeds.
BankUnited Mortgage Corporation, a Florida corporation ("BMC"), is a
wholly owned operating subsidiary of the Company that services loans secured by
real property. BMC was established for this purpose in 1996, and commenced
operations in October 1997.
BankUnited Capital, BankUnited Capital II and BankUnited Capital III (the
"Trusts") are Delaware statutory business trusts wholly owned by the Company.
BankUnited Capital was formed in 1996, and BankUnited Capital II and BankUnited
Capital III were formed in 1997, for the purpose of issuing Trust Preferred
Securities and investing the proceeds therefrom in Junior Subordinated
Debentures issued by the Company. BankUnited Capital and BankUnited Capital II
are operating, but BankUnited Capital III has not yet issued any capital stock.
BUFC Financial Services, Incorporated, a Florida corporation, is a wholly
owned operating subsidiary of the Company organized in 1997 for the purpose of
selling annuities, insurance and securities products.
BankUnited Financial Services, Inc., a Florida corporation, is a wholly
owned operating subsidiary of the Company, organized in 1997 for the purpose of
brokering loans.
EMPLOYEES
At September 30, 1997, the Company had 246 full-time equivalent employees.
The Company's employees are not represented by a collective bargaining group,
and the Company considers its relations with its employees to be excellent. The
Company provides employee benefits customary in the savings industry, which
include group medical and life insurance, a 401(k) savings plan and paid
vacations. The Company also provides a stock bonus plan, a profit sharing plan
and the two stock option plans for certain officers, directors and employees.
REGULATION
RECENT LEGISLATIVE DEVELOPMENTS
In recent years, measures have been taken to reform the thrift and banking
industries and to strengthen the insurance funds for depository institutions.
The most significant of these measures for savings institutions was the
Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (the
"FIRREA"), which has had a major impact on the operation and regulation of
savings associations generally. In 1991, the Federal Deposit Insurance
Corporation Improvement Act of 1991 (the "FDICIA"), became law. Although the
FDICIA's primary purpose was to recapitalize the Bank Insurance Fund (the
"BIF") of the FDIC, which insures the deposits of commercial banks, the FDICIA
also affected the supervision and regulation of all federally insured
depository institutions, including federal savings banks such as the Bank. More
recent legislation has attempted to resolve the problems of the SAIF in meeting
its minimum required reserve ratio and the related concern facing SAIF-insured
institutions, such as the Bank, of paying significantly higher deposit
insurance premiums than BIF-insured institutions. The following discussion is a
summary of the significant provisions of the recent legislation affecting the
banking industry.
20
THE FINANCIAL INSTITUTIONS REFORM, RECOVERY, AND ENFORCEMENT ACT OF 1989.
The FIRREA, which was enacted in response to concerns regarding the soundness
of the thrift industry, brought about a significant regulatory restructuring,
limited savings institutions' business activities, and increased their
regulatory capital requirements. The FIRREA abolished the Federal Home Loan
Bank Board and the Federal Savings and Loan Insurance Corporation (the
"FSLIC"), and established the OTS as the primary federal regulator for savings
institutions. Deposits at the Bank are insured through the SAIF, a separate
fund managed by the FDIC for institutions whose deposits were formerly insured
by the FSLIC. Regulatory functions relating to deposit insurance are generally
exercised by the FDIC. The Resolution Trust Corporation (the "RTC") was created
under the FIRREA to manage conservatorships and receiverships of insolvent
thrifts, and was succeeded by the FDIC.
THE FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991. The
FDICIA authorizes regulators to take prompt corrective action to solve the
problems of critically undercapitalized institutions. As a result, the banking
regulators are required to take certain supervisory actions against
undercapitalized institutions, the severity of which increases as an
institution's level of capitalization decreases. Pursuant to the FDICIA, the
federal banking agencies have established the levels at which an insured
institution is considered to be "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." See "--Savings Institution Regulations--Prompt Corrective
Action" below for a discussion of the applicable capital levels.
The FDICIA requires that the federal banking agencies revise their
risk-based capital requirements to include components for interest rate risk,
concentration of credit risk and the risk of non-traditional activities. See
"--Savings Institution Regulations--Regulatory Capital Requirements" below for
a description of the final rule adopted by the OTS that incorporates an
interest rate risk component in the risk-based capital requirement. Although
adopted, implementation of this rule has been postponed indefinitely.
In addition, the FDICIA requires each federal banking agency to establish
standards relating to internal controls, information systems, and internal
audit systems that are designed to assess the financial condition and
management of the institution; loan documentation; credit underwriting;
interest rate exposure; asset growth; and compensation, fees and benefits. The
FDICIA lowered the qualified thrift lender ("QTL") investment percentage
applicable to SAIF-insured institutions. See "--Savings Institution
Regulations--Qualified Thrift Lender Test" below. The FDICIA also provided that
a risk based assessment system for insured depository institutions must be
established before January 1, 1994. See "--Savings Institution
Regulations--Insurance of Accounts" below. These requirements have been
implemented. The FDICIA further requires annual on-site full examinations of
depository institutions, with certain exceptions, and annual reports on
institutions' financial and management controls.
THE RIEGLE-NEAL INTERSTATE BANKING AND BRANCHING EFFICIENCY ACT OF 1994.
In September 1994, the Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the "Interstate Branching Act") became law. Savings associations,
whose primary federal regulator is the OTS, generally are not directly affected
by the Interstate Branching Act except for a provision that allows an insured
savings association that was an affiliate of a bank on July 1, 1994, to act as
the bank's agent as though it were an insured bank affiliate of the bank.
The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums based upon their level of
capital and supervisory evaluation. Under the system, institutions classified
as well capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier
I or core capital to risk-weighted assets ("Tier I risk-based capital") of at
least 6% and a risk-based capital ratio of at least 10%) and considered healthy
pay the lowest premium while institutions that are less than adequately
capitalized (i.e., core or Tier I risk-based capital ratios of less than 4% or
a risk-based capital ratio of less than 8%) and considered of substantial
supervisory concern pay the highest premium. Risk classification of all insured
institutions is made by the FDIC for each semi-annual assessment period.
21
The FDIC is authorized to increase assessment rates, on a semiannual
basis, if it determines that the reserve ratio of the SAIF will be less than
the designated reserve ratio of 1.25% of SAIF insured deposits. In setting
these increased assessments, the FDIC must seek to restore the reserve ratio to
that designated reserve level, or such higher reserve ratio as is established
by the FDIC. The FDIC may also impose special assessments on SAIF members to
repay amounts borrowed from the United States Treasury or for any other reason
deemed necessary by the FDIC.
For the first six months of 1995, the assessment schedule for members of
the BIF of the FDIC and SAIF members ranged from .23% to .31% of deposits. As
is the case with the SAIF, the FDIC is authorized to adjust the insurance
premium rates for banks that are insured by the BIF of the FDIC in order to
maintain the reserve ratio of the BIF at 1.25% of BIF insured deposits. As a
result of the BIF reaching its statutory reserve ratio the FDIC revised the
premium schedule for BIF insured institutions to provide a range of .04% to
.31% of deposits. The revisions became effective in the third quarter of 1995.
In addition, the BIF rates were further revised, effective January 1996, to
provide a range of 0% to .27%. The SAIF rates, however, were not adjusted. At
the time the FDIC revised the BIF premium schedule, it noted that, absent
legislative action (as discussed below), the SAIF would not attain its
designated reserve ratio until the year 2002. As a result, SAIF insured members
would continue to be generally subject to higher deposit insurance premiums
than BIF insured institutions until, all things being equal, the SAIF attained
its required reserve ratio.
In order to eliminate this disparity and any competitive disadvantage
between BIF and SAIF member institutions with respect to deposit insurance
premiums, legislation to recapitalize the SAIF was enacted in September 1996.
The legislation provided for a one-time assessment to be imposed on all
deposits assessed at the SAIF rates, as of March 31, 1995, in order to
recapitalize the SAIF. It also provided for the merger of the BIF and the SAIF
on January 1, 1999 if no savings associations then exist. The special
assessment rate was established at .657% of deposits by the FDIC and the
resulting assessment of $2.6 million (exclusive of an additional $2.3 million
payment which relates to Suncoast deposits) was paid in November 1996. This
special assessment significantly increased non-interest expense and adversely
affected the Bank's results of operations for the year ended September 30,
1996. As a result of the special assessment, the Bank's deposit insurance
premiums were initially reduced to 6.7 basis points, and as of June 30, 1997 to
6.3 basis points based upon its current risk classification and the new
assessment schedule for SAIF insured institutions. These premiums are subject
to change in future periods.
Prior to the enactment of the legislation, a portion of the SAIF
assessment imposed on savings associations was used to repay obligations issued
by a federally chartered corporation to provide financing ("FICO") for
resolving the thrift crisis in the 1980's. Although the FDIC has proposed that
the SAIF assessment be equalized with the BIF assessment schedule, SAIF-insured
institutions will continue to be subject to a FICO assessment as a result of
this continuing obligation. Although the legislation also now requires
assessments to be made on BIF-assessable deposits for this purpose, that
assessment will be limited to 20% of the rate imposed on SAIF assessable
deposits until the earlier of December 31, 1999 or when no savings association
continues to exist, thereby imposing a greater burden on SAIF member
institutions such as the Bank. Thereafter, however, assessments on BIF-member
institutions will be made on the same basis as SAIF-member institutions. The
rates to be established by the FDIC to implement this requirement for all
FDIC-insured institutions were 6.48 basis points assessment on SAIF deposits
and 1.30 basis points on BIF deposits until BIF insured institutions
participate fully in the assessment.
SAVINGS AND LOAN HOLDING COMPANY REGULATIONS
TRANSACTIONS WITH AFFILIATES. The Compa